Sen. Max Baucus moves to reshape tax code

Last month, Sen. Max Baucus summoned members of the Senate Finance Committee to a closed-door meeting to discuss the first full-scale rewrite of the 5,600-page U.S. tax code in more than 25 years.

The task would be gargantuan, and much of Washington has called it impossible in these contentious times. But after two years of watching President Obama and congressional leaders take on tax policy and other areas of the committee’s vast jurisdiction, the Montana Democrat who is the panel’s chairman was ready to reclaim his turf.

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The battle over the 2014 budget: Explore the spending cuts and revenue changes under the main budget proposals currently on the table.
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The battle over the 2014 budget: Explore the spending cuts and revenue changes under the main budget proposals currently on the table.

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Senators arrived in a Finance Committee conference room to find crystal bowls filled with green and white M&Ms imprinted with pictures of President Ronald Reagan, as well as Democratic Rep. Dan Rostenkowski and Republican Sen. Bob Packwood, the committee chairmen who engineered the last tax overhaul, in 1986.

They found a detailed schedule of 10 more meetings, where committee staff members will present option papers for achieving such popular goals as simpler filing rules.

And they found Baucus in emphatic agreement with Sen. Orrin G. Hatch (Utah), the ranking Republican on the panel, according to notes taken by a Democratic aide in attendance, that the committee should aim to produce a tax-reform plan by August, when Congress will once again need a face-saving deal to justify raising the legal limit on the $16.8 trillion in federal debt.

The move throws Baucus, a conservative maverick who often infuriates Democratic leaders, into uneasy contention with his more liberal colleagues to shape the next phase of the federal budget battle. With Republicans and Democrats advocating vastly different plans for getting the nation’s debt under control — and the White House due this week to offer a proposal — Baucus argues that his committee is best positioned to forge a bipartisan compromise and avoid another economy-shattering showdown.

Liberals still fuming over Baucus’s 2009 performance as point man on Obama’s health-care package fear that means conspiring with Republicans to promote legislation that would not raise significant new revenue from wealthy households, Democrats’ chief tax goal.

“He makes me nervous,” said Jared Bernstein of the left-leaning Center on Budget and Policy Priorities, who served for two years as chief economist to Vice President Biden. “I worry about his commitment to get the revenues we need.”

The campaign for tax reform comes as Baucus is gearing up to seek a seventh term representing Montana, a state Obama lost last year by more than 13 points. A recent poll found Baucus’s approval rating at an anemic 45 percent, and liberals worry that the timing will make him even less inclined to toe the Democratic line on taxes.

The senator has done little to allay such concerns. Last month, he was one of only four Democrats who voted against the Senate budget, telling reporters that its “$1 trillion in tax increases is too much.” He meets regularly with House Ways and Means Committee Chairman Dave Camp (R-Mich.), who said Baucus shares his vision for legislation that eliminates loopholes and lowers rates without producing more revenue.

“We both agree that comprehensive, revenue-neutral tax reform is the right thing now,” Camp said.

Meanwhile, Baucus is insisting on overhauling the individual tax code as well as the corporate code, a position in line with the GOP but at odds with many Democrats. The Obama administration has promoted corporate reform, but has been indifferent to far-reaching changes to the individual tax code.

Privately, senior Democrats dismiss Baucus’s activities, saying tax reform will not happen unless Obama strikes a broad deal with Republicans that includes $600 billion more in taxes over the next decade. But Republicans are unlikely to agree to higher revenue without a tax-code rewrite; aides said Camp is pressing GOP leaders to demand tax reform in exchange for supporting a higher federal debt limit.

For that, Hatch said, Obama needs Baucus.

“Tax reform is not something you can do in Leader Reid’s office,” Hatch said, referring to Senate Majority Leader Harry M. Reid (D-Nev.). “I do believe we can do something worthwhile here if we can allow Max to lead.”

In an interview in his office — decorated in leather, paintings of the American West and mementos from nearly four decades of representing Montana — Baucus said he is determined to build consensus with Republicans and at last resolve the standoff over taxes and spending that has gripped Washington since the GOP took control of the House in 2011. Last-minute deals cut in backrooms by a handful of party leaders, he said, have produced winners and losers, but no lasting compromise.

“I don’t dispute” that the White House has shown little interest in comprehensive tax reform, Baucus said. “But it’s irrelevant. Because I’m just going ahead.”

“Senators, specifically on the Finance Committee, are anxious to legislate,” he said. “We don’t like watching the president and [House] speaker put together grand-bargain solutions. We want to do it. That’s why we hired out for these jobs. Not to watch but to legislate.”

Baucus declined say whether he views tax reform as a way to raise revenue, although he did not rule it out. Instead, he said, that divisive question should be left unanswered until committee members have a chance to study areas of reform where they are more likely to agree.

“No one knows what’s going to happen” when party leaders confront the next debt-limit deadline, Baucus said. But “something’s going to have to give. And maybe what gives is some instructions for Finance and Ways and Means to come up with a solution.”

On the final day of the Senate budget debate, Baucus, 71, woke up and ran three miles with his third wife, Melodee, a former staff member 15 years his junior. Then he spent nearly 18 hours on the Senate floor for a series of votes that stretched until 5 a.m. the next day.

Raised on his mother’s sprawling ranch north of Helena, Mont., Baucus has spent much of his life performing feats of endurance. Ten years ago, he completed Maryland’s JFK 50-mile ultra-marathon in 11 hours despite a nasty fall on mile eight that left him with a bloody gash in his head and later required emergency brain surgery.

Baucus said he still dreams of competing in the Western States Endurance Run, which snakes 100 miles through California’s Sierra Nevada Mountains. But training for another ultra-marathon is time-consuming, he said, and probably not in the cards.

“You gotta kill some puppies,” he said cheerfully, quoting an off-beat motivational poster he once saw in Texas. “You can’t do it all. You gotta make choices. It’s all priorities. You gotta kill a puppy.”

Strains with the left

Baucus has certainly killed his share of puppies for the sake of enacting legislation. Obama political adviser Jim Messina, who began his career with Baucus, said the senator has “never cared about who he makes angry or what he should do. He just wants to be part of getting something done.”

Upon becoming chairman of the Finance Committee in 2001, Baucus worked with then-President George W. Bush to enact one of the largest tax cuts in American history over the fierce opposition of Democratic leaders.

A few years later, with Bush still in the White House and Republicans in control of both chambers of Congress, Baucus helped write legislation to create the first ­government-funded prescription drug plan for the elderly. Democrats derided it as a sweetheart deal for the pharmaceutical industry, and Republicans shut then-Senate Minority Leader Thomas A. Daschle (D-S.D.) out of the negotiations. But they welcomed Baucus.

Most recently, Baucus was vilified by liberals for refusing to consider a government-run health insurance agency — known as the “public option” — as part of legislation to expand coverage to the uninsured. Although Obama had just won the White House and Democrats controlled both chambers of Congress, Baucus insisted on working with Republicans in hopes of drafting a bill that could win GOP support.

Baucus has done his share to support Democratic causes. He counts the 1990 update of the Clean Air Act as his most important policy achievement. And he crushed Bush’s push for private Social Security accounts in 2005.

But he has attracted more attention for his high-profile apostasies, as well as the army of former aides who now work as lobbyists and the massive haul of campaign cash he accepts from special interests. The Nation once called him “K Street’s Favorite Democrat.” The American Prospect dubbed him “Bad Max.” And in 2006, the New Republic urged Reid to boot him off the Finance Committee over the prescription-drug plan, known as Medicare Part D.

“Yes, in principle, it’s a good thing that millions of seniors now have access to prescription drugs,” the magazine’s editors wrote. “But, partly as a result of Baucus’s efforts (or, rather, his insufficient backbone), the bill lavishly subsidizes insurance and pharmaceutical companies, which ultimately short-changes seniors and makes the program a fiscal disaster.”

Legislative vindication

Baucus has endured the attacks stoically, often declining to respond. “You gotta do what you think is right and go ahead,” he said.

Meanwhile, his bipartisan approach tends to produce sturdy legislation that outlives its critics. Medicare Part D, for example, is now hugely popular among seniors — and far less expensive than anyone predicted.

“I think he was probably right and we were wrong on Part D,” said Richard Kirsch, a senior fellow at the liberal Roosevelt Institute who has often clashed with Baucus over health policy. “To say he was wrong would be to say there would have been an opportunity later to pass legislation that wouldn’t have been a sweetheart deal for the industry. And there probably wasn’t that opportunity.”

John McDonough, a professor at the Harvard School of Public Health, said a similar dynamic prevailed during the drafting of Obama’s health initiative. McDonough, then a top aide to Sen. Edward M. Kennedy (D-Mass.), supported the public option. Baucus insisted it would repel not only Republicans, but also moderate Democrats, whose votes were needed in the Senate.

With Kennedy sidelined by illness, McDonough said Baucus worked with Sen. Charles E. Grassley (Iowa) to draft “a really compelling and important blueprint” for what was ultimately enacted. When Grassley and other Republicans abandoned the effort — and Senate Democrats lost their filibuster-proof majority with Kennedy’s death — Baucus kept the bill on track.

“He’s a smart guy. He cares about good policy. And he is an effective politician,” McDonough said. “He’s one of the heroes of health reform. And you can quote me on that.”

‘The 800-pound gorilla’

The health-care measure that Obama signed into law in 2010 did not accomplish one of Baucus’s top priorities: a rethinking of the tax-free treatment of employer-provided health insurance. Baucus believed that ending or sharply limiting the tax perk would not only pay for an expansion of coverage, but “do more than anything to reduce the rising cost of health care in the United States,” McDonough said.

In the summer of 2009, however, with labor and business united in opposition, Democratic leaders told him to pull the plug.

By official estimates, the “employer health exclusion” will drain $760 billion from the Treasury over the next five years, making it the largest of the “loopholes” that politicians in both parties keep promising to eliminate as part of tax reform. But the opposition to changing the employer exclusion suggests that the biggest perks may be off limits, and Baucus told Finance Committee members that he is skeptical that “closing loopholes” would generate much money for any purpose.

“Everyone wants to get rid of these loopholes. The question is what to do with the revenue,” Baucus said. “Republicans want to use it for rate reduction. Democrats want debt reduction. And I said to the committee, ‘That’s the 800-pound gorilla in the room here. We all know that. Let’s postpone a decision on that and work through the code and see how much this base-broadening actually gets us.’ ”

Members of the finance panel are spending Thursday mornings exploring those options, and some are warming to the task. “I think you’re going to be surprised at how many people want to do it,” said Sen. Ron Wyden (D-Ore.).

Others are not optimistic, including Grassley, who has worked closely with Baucus for years. The senator said he doubts that Obama is sincere in his efforts to “mend fences” with Republicans on tax policy. But, he said, “Baucus is going to try to be ready if the day comes to get a bill out of Finance.”

And opportunity can strike at surprising times. Last summer, Baucus led a bipartisan review of expiring tax provisions, and the committee voted to extend most of them. But the plan had no support in the House and languished in the Senate.

Then came the “fiscal cliff.” When Congress voted on New Year’s Day on an eleventh-hour deal brokered by the White House and Senate leaders to avoid raising taxes for most people, the Finance Committee’s provisions were slipped in.

“I’m not going to say with 100 percent certainty [that tax reform] is going to succeed. But I am going to do my doggonedest,” Baucus said. “I’m a very proud Democrat, but I also like results.”

 
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